MCQ for CA Final SCMPE - Chapter 2 Modern Business Environment
Sample Multiple Choice Questions (MCQ's) for CA Final - Paper 5 - Strategic Cost Management and Performance Evaluation - Chapter 2: Modern Business Environment - For Practice relevant for May/Nov 23 Examinations
Q:1 A company produces and sells a single product. The cost data per unit for the year 2020 is predicted as below
₹ per unit |
|
Direct Material |
35 |
Direct Labour |
25 |
Variable Overheads |
15 |
Selling Price |
90 |
The company has forecast that demand for the product during the year 2020 will be 28,000 units. However, to satisfy this level of demand, production quantity will be increased?
There are no opening stock and closing stock of the product.
The stock level of material remains unchanged throughout the period.
The following additional information regarding costs and revenue are given:
12.5% of the items delivered to customers will be rejected due to specification failure and will require free replacement. The cost of delivering the replacement item is ₹ 5 per unit
20% of the items produced will be discovered faulty at the inspection stage before they are delivered to customers
10% of the direct material wll be scrapped due to damage while in storage.
Due to above, total quality costs for the year is expected to be ₹ 10,75,556.
The company is now considering the following proposal:
To introduce training programmes for the workers which, the management of the company believes, will reduce the level of faulty production to 10%. This training programme will cost ₹ 4,50,000 per annum
To avail the services of quality control consultant at annual charges of ₹ 50,000 which would reduce the percentage of faulty items delivered to customers to 9.5%
Required
(i) PREPARE a statement of expected quality costs the company would incur if it accepts the proposal. Costs are to be calculated using the four recognised quality costs heads.
(ii) Would you RECOMMEND the proposal? Give financial and non-financial reasons (in brief)
Calculate Total Quality Costs for the Current Situation
- 7,55,556
- 10,70,056
- 10,75,556
- 12,50,556
Answer: 3
Q:2 A company produces and sells a single product. The cost data per unit for the year 2020 is predicted as below
₹ per unit |
|
Direct Material |
35 |
Direct Labour |
25 |
Variable Overheads |
15 |
Selling Price |
90 |
The company has forecast that demand for the product during the year 2020 will be 28,000 units. However, to satisty this level of demand, production quantity will be increased?
There are no opening stock and closing stock of the product.
The stock level of material remains unchanged throughout the period.
The following additional information regarding costs and revenue are given:
12.5% of the items delivered to customers will be rejected due to specification failure and will require free replacement. The cost of delivering the replacement item is ₹ 5 per unit
20% of the items produced will be discovered faulty at the inspection stage before they are delivered to customers
10% of the direct material wll be scrapped due to damage while in storage.
Due to above, total quality costs for the year is expected to be ₹ 10,75,556.
The company is now considering the following proposal:
To introduce training programmes for the workers which, the management of the company believes, will reduce the level of faulty production to 10%. This training programme will cost ₹ 4,50,000 per annum
To avail the services of quality control consultant at annual charges of ₹ 50,000 which would reduce the percentage of faulty items delivered to customers to 9.5%
Required
(i) PREPARE a statement of expected quality costs the company would incur if it accepts the proposal. Costs are to be calculated using the four recognised quality costs heads.
(ii) Would you RECOMMEND the proposal?
Give financial and non-financial reasons (in brief)
Calculate External Failure Cost for Current Situation
- 3,20,000
- 3,60,000
- 1,20,000
- 3,00,000
Answer: 1
Q:3 H Automobile Group is among top 20 business houses in India. It has been founded in the year 1930, at the height of India's movement for independence from the British, the group has an illustrious history. H's footprint stretches over a wide range of industries, spanning automobiles (two wheelers manufacturer and three wheelers manufacturer). H's headquarter is located at Hyderabad. Bike Production is one of segment of H Group. Management of H wants to analyse the following actual information for the April
Cost Data
Customer Complaints Centre Cost |
35 per hr. |
Equipment Testing Cost |
18 per hr. |
Warranty Repair Cost |
1,560 per bike |
Manufacturing Rework Cost |
228 per bike |
Volume and Activity Data
Bikes Requiring Manufacturing Rework |
3,200 bikes |
Bikes Requiring Warranty Repair |
2,600 bikes |
Production Line Equipment Testing Time |
1,600 hrs |
Customer Complaints Centre Time |
2,000 hrs. |
Additional Information
Due to the quality issues in the month, the bike production line experienced unproductive 'down time' which cost ₹ 7,70,000. H carried out a quality review of its existing suppliers to enhance quality levels during the month at a cost of ₹ 1,25,000.
Required
(i) PREPARE a statement showing ‘Total Quality Cost’.
(ii) ADVISE any TWO measures to reduce the non-conformance cost.
Calculate Warranty Repair Cost
- 40,60,000
- 40,62,200
- 40,57,000
- 40,56,000
Answer: 3
Q:4 H Automobile Group is among top 20 business houses in India. It has been founded in the year 1930, at the height of India's movement for independence from the British, the group has an illustrious history. H's footprint stretches over a wide range of industries, spanning automobiles (two wheelers manufacturer and three wheelers manufacturer). H's headquarter is located at Hyderabad. Bike Production is one of segment of H Group. Management of H wants to analyse the following actual information for the April
Cost Data
Customer Complaints Centre Cost |
35 per hr. |
Equipment Testing Cost |
18 per hr. |
Warranty Repair Cost |
1,560 per bike |
Manufacturing Rework Cost |
228 per bike |
Volume and Activity Data
Bikes Requiring Manufacturing Rework |
3,200 bikes |
Bikes Requiring Warranty Repair |
2,600 bikes |
Production Line Equipment Testing Time |
1,600 hrs |
Customer Complaints Centre Time |
2,000 hrs. |
Additional Information
Due to the quality issues in the month, the bike production line experienced unproductive 'down time' which cost ₹ 7,70,000. H carried out a quality review of its existing suppliers to enhance quality levels during the month at a cost of ₹ 1,25,000.
Required
(i) PREPARE a statement showing ‘Total Quality Cost’.
(ii) ADVISE any TWO measures to reduce the non-conformance cost.
Calculate Warranty Repair Cost
- 57,97,400
- 57,79,400
- 57,29,400
- 56,29,400
Answer: 2
Q:5 The CEO of P Limited is concerned with the amounts of resources currently spent on customers' warranty claims. Each box of its product is printed with the logo: "satisfaction guaranteed or your money back'. P Limited is having difficulty competing with X Limited because it does not have the reputation for high quality that X Limited enjoys. Since the warranty claims are so high, the CEO of P Limited would like to evaluate what costs are being incurred to ensure the quality of the product. Following information is collected from various departments within the company relating to 2019-20:
Particulars of Costs |
₹ |
Warranty claims |
4,25,000 |
Employee training costs |
1,20,000 |
Rework |
3,00,000 |
Lost profits from lost customers due to impaired reputation |
8,10,000 |
Cost of rejected units |
50,000 |
Sales return processing |
1,75,000 |
Testing |
1,70,000 |
For the year 2020-21, the CEO is considering spending the following amounts on a new quality programme:
Inspect raw material |
1.20,000 |
Reengineer the production process to improve product quality |
7,50,000 |
Supplier screening and certification |
30,000 |
Preventive maintenance on plant equipment |
70,000 |
P Limited expects the new quality programme to save costs by the following amounts:
(₹) |
|
Reduction in lost profits from lost sales due to impaired reputation |
8,00,000 |
Reduction in rework costs |
2,50,000 |
Reduction in warranty costs |
3,25,000 |
Reduction in sales return processing |
1,50,000 |
Required
(i) PREPARE a Cost of Quality Statement' for the year 2019-20 showing the percentage of the total costs of quality incurred in each cost category.
(ii) PREPARE a 'Cost Benefit Analysis' of the new quality programme showing how the quality initiative will affect each cost category
(iii) STATE how the manager trade-offs among the four categories of quality costs.
Calculate Internal Failure Costs:
- 250000
- 540000
- 350000
- 280000
Answer: 3
CA Final - Paper 5 - SCMPE - Chapter 3 
To get back to the Chapterwise MCQ List Page
Hope you can find this article helpful. If you did like the content then Share it with your friends who are preparing for CA Final Exams or who will be giving their CA Final Exams in the near future.